Are the GREAT Deals Gone?

Are the GREAT Deals Gone?

Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

Are the great deals gone?

Through the years I've been seeing less and less "great" purchases, and more and more deals to be had at "market" pricing. Currently, we are at 12.75% interest with 3 - 5 points on the loan origination end; we haven't been able to locate any existing mortgage notes we can buy of similar quality with ROI even equal to that. We have in the past purchased notes in default, but this represents a different risk profile.
On the equity end we haven’t purchased a property in the last 2 years.  Previously, we were able to obtain a 10 cap without undue risk (about 5 years ago); the. 3 or 4 years ago we were able to purchase at 7-8 cap and “juice” returns by borrowing 50% at 4% fixed 20 year financing.  Now, with borrowing at 6% +, the equity investments just don’t seem to make sense.

More telling, perhaps, is that my usual sources of deal flow have not been able to come up with those one off GREAT deals we used to get once or thrice a year.  Oh, some of our sources THINK they’ve located those deals, but closer examination either uncovers higher risk, undisclosed negative information, or outright fraud.  I’ve expanded my sources of leads, but that’s a longer term project as when we establish new sources we become swamped with submissions of deals bearing no relation to our published criteria; at risk levels a river boat gambler wouldn’t touch, or flat out the source just shotgunning whatever crap comes across his desk, without even reading the documentation.  

I’m a believer in “adding value” to the investment.  On the equity side by increasing net income and or decreasing risk, on the debt side by “working” the note.  Profitability can also be enhanced on a sale (sometimes) if we choose to provide owner financing or wrap financing.  Right now I don’t see any equity deals approaching a 12 cap without undo risk.  What I see is plenty offered in the 6-8 cap arena, and a lot of high vacancy properties with negative cash flow.

Wondering what other investors are seeing? 

Private Mortgage Financing Partners, LLC
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Lender · Nationwide · Member since 2018 · 571 posts · 310 votes
2y

Gmail was only created 20 years ago and Zillow 18. Technology creates more efficient markets and I suspect that has shifted the business more towards using technology and marketing to hit singles consistently rather than home runs. 

See this reply in the discussion

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  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    1711 Meyer Road, Houston. West of George Bush Airport.  Would convert to flex building. Or to self storage.  $1mm equity day one when ready to rent.  Offer 70% of ask.  3day offer.  Move on to the next offer.  

    Each of us has the market they operate in. Out in small town Iowa our Selfstorage development has dried up due to the high cost of building versus low rental rates. We are spending our time and moving money towards country subdivision lots, 1mm population metro storage development, flex buildings and expanding teak plantations in Belize. Realize these probably aren't your REI product types, but same concept. We have shifted our business model slightly to match up with our expected returns.

    I have helped my brother south of San Antonio and there are lots of opportunities there. Lived in Houston and Dallas.  

    Things definitely are not as easy as before with lower interest rates and significantly lower construction costs.  Construction cost is more restrictive on our opportunities than interest rates. 

    For our investment types, if we were in Texas.  Would look for offlist Tax sales of 20 acres or more. To do country lots of 4 or 5 acres.  Also look at any property on loopnet older than a year and make significantly reduced offers. But you have to have a business Model for that plan.  


    Realize your more in the lending side, but that is the type of adaptation from our business model we would take.  

  • Lender · Nationwide · Member since 2018 · 571 posts · 310 votes
    2y

    Gmail was only created 20 years ago and Zillow 18. Technology creates more efficient markets and I suspect that has shifted the business more towards using technology and marketing to hit singles consistently rather than home runs. 

  • Matt McCurdyBusiness Member
    Real Estate Broker · Cedar Rapids, IA · Member since 2019 · 143 posts · 56 votes
    2y

    Higher interest rates are certainly dampening "great deals" or even good/average deals. The question becomes: does an investor risk going after a low cashflowing deal now in "hopes" of getting a better cashflow in the future and/or appreciation? I think the answer may surprise some, but I'm a big believer in looking at it case-by-case. I purchased a package of 22 SFH's last March, when I thought rates would go lower (they've gone higher). It was more of an equity purchase than a cashflow investment. Would I have done this deal earlier in my investment journey? NO! Did it make sense now? Absolutely! In my brokerage and coaching businesses, I find 50% of my time is being spent saving investors from themselves.

  • Don KonipolBusiness Member
    OP
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y

    @Matt McCurdy

    "In my brokerage and coaching businesses, I find 50% of my time is being spent saving investors from themselves."

    Very telling comment!

    Private Mortgage Financing Partners, LLC
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    @Don Konipol What is the new east west interstate planned for your area?  I would make strategic investments around or near those new interchanges and bypasses.  

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    2y
    Quote from @Shafi Noss:

    Gmail was only created 20 years ago and Zillow 18. Technology creates more efficient markets and I suspect that has shifted the business more towards using technology and marketing to hit singles consistently rather than home runs. 


    massive government actions created record inflation, high interest rates, and a host of other consequences to REI and other areas of life

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    2y

    Don,

    I think its very market and niche specific and one does kind of need to explore deals they may not have done in the past if we are going to maintain velocity.

    For us we are supremely blessed with our new build project in Oregon it has been quite the adventure coming out of the ground right when covid started.. then lumber 3X etc etc but for us the values rose to keep our original or exceed our profit margins per pro forma just taken a little longer than what we all planned or hoped for.

    Most of my BRRR clients that started as fix and flippers are now keeping most of their deals so we continue to have success with those partners.. But you do have to cast a wide net and of course we are working in a Niche with little competition the sub 100k fix and flip deals..

    We launched out Land flip funding last year and that has gone VERY well .. to the point if it brought enough volume safely I would back off doing the BRRR stuff as that is such high demand staff time etc etc.. Land flips for us are extremely passive and we have almost no competition in this niche either.. Investors call around looking for land loans and its crickets.. they call me and Sure i do those.. but I am very picky of course.. I started in the land business so I do have a lot of background knowledge at it.

    I have also been trying to buy a longer term cash flow asset and with rates were they are and cap rates out our way ( at least asking) at 4 to 5 to 6  they still dont make sense. but we are starting to see some 7s so if we can offer and get 8 on a nice project I hope to pull the trigger this year.

  • Rental Property Investor · Somewhere over the Rainbow · Member since 2021 · 1k+ posts · 1k+ votes
    2y

    In for later

    My volume is slightly lower and the deals I'm getting now aren't as good as they were a couple years ago

  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Jay Hinrichs

    part of the trend of new construction skewing toward high end right?  in that other thread a few weeks ago we were talking about how there are actually lots of affordable houses... just in places people aren't moving to / don't want to live.  but it's a great answer because that IS what is working in 2024

  • Lender · Nationwide · Member since 2023 · 362 posts · 237 votes
    2y

    I think it depends on what markets you are looking in. In the midwest where I normally shop, there are still solid deals. In Detroit, where I have most recently purchased a property, I usually purchase properties around 50-60k, put in about 15-25k in rehab and rent it for 1200-1300/month. I believe those numbers are still a good deal

  • Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    2y

    For now, yes. BUT that will change :)

  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    2y

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

  • Don KonipolBusiness Member
    OP
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y

    We've had some great posts here from some very knowledgeable and experienced investors. To sum up my experience, my commercial mortgage loan originations are booming; we're getting 12.75 - 13.5% interest with 4 points for 12 month loans at 40-60% LTV.

    The purchase of existing loans from lending institutions has dried up for us, as buyers are offering more than we feel is warranted, and they are buying “dubious” assets.  Our sourcing contacts are not coming to us with attractive existing notes.

    I am used to purchasing real property at 12 -15 cap; maybe not when I make the purchase but I can bring it to that cap shortly there after.  The stuff I’m seeing now I just don’t see how I can get it to 12 cap even after stabilization; it’s as if sellers are selling based on future maybe projections, and not current operations.  I started to buy some REITs since I feel I can obtain the same “value” with total passivity.  Some of the REITs I purchased are at 50% of asset value (analysts estimate).  Of course you’re also buying an operating company.  Some of these REITs are so poorly run and so lacking in shareholder benefit that they actually manage to go out of business and return almost nothing to shareholders.  But that’s another story for another day.  

    Private Mortgage Financing Partners, LLC
  • Lender · Nationwide · Member since 2023 · 362 posts · 237 votes
    2y
    Quote from @Nicholas L.:

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

     Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

  • Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes
    2y
    Quote from @Don Konipol:

    Are the great deals gone?

    Through the years I've been seeing less and less "great" purchases, and more and more deals to be had at "market" pricing. Currently, we are at 12.75% interest with 3 - 5 points on the loan origination end; we haven't been able to locate any existing mortgage notes we can buy of similar quality with ROI even equal to that. We have in the past purchased notes in default, but this represents a different risk profile.
    On the equity end we haven’t purchased a property in the last 2 years.  Previously, we were able to obtain a 10 cap without undue risk (about 5 years ago); the. 3 or 4 years ago we were able to purchase at 7-8 cap and “juice” returns by borrowing 50% at 4% fixed 20 year financing.  Now, with borrowing at 6% +, the equity investments just don’t seem to make sense.

    More telling, perhaps, is that my usual sources of deal flow have not been able to come up with those one off GREAT deals we used to get once or thrice a year.  Oh, some of our sources THINK they’ve located those deals, but closer examination either uncovers higher risk, undisclosed negative information, or outright fraud.  I’ve expanded my sources of leads, but that’s a longer term project as when we establish new sources we become swamped with submissions of deals bearing no relation to our published criteria; at risk levels a river boat gambler wouldn’t touch, or flat out the source just shotgunning whatever crap comes across his desk, without even reading the documentation.  

    I’m a believer in “adding value” to the investment.  On the equity side by increasing net income and or decreasing risk, on the debt side by “working” the note.  Profitability can also be enhanced on a sale (sometimes) if we choose to provide owner financing or wrap financing.  Right now I don’t see any equity deals approaching a 12 cap without undo risk.  What I see is plenty offered in the 6-8 cap arena, and a lot of high vacancy properties with negative cash flow.

    Wondering what other investors are seeing? 

    The answer is clearly yes, not to be fair the 2010’s were probably a golden age for re investing, this is an especially tough period, so that gap feels huge, some of this is just a result of the pandemic and subsequent inflation, some of this is by design, the Fed wants to restrict investing and for you to put money into tresuries and cd’s not real estate & stocks. I once heard a stock market investor say there we’re basically two ways to invest, either betting on broad market trends or basically hand to hand combant, finding stock’s that for whatever reason were basically mispriced or had arbitrage opportunity, I think the 2010’s were basically a rising tide lifted all boats kind of market, this is definitely gonna be more hand to hand combat, finding misprised deals, mispriced sub-markets (I’m a big fan of more rural areas that simply just by there very nature have less competition and more ability to create opportunities) and focusing on execution. 
  • Member since 2019 · 88 posts · 25 votes
    2y

    I am a newbie who is beginning his RE journey and learning the ropes and tricks of the trade at the same time. I noticed that CDs are giving me better interest than the cashflow I would get from a $100k rental property. I have been trying to find decent deals in the market but no luck so far.

    Whatever deals I could find are being swooped up by out of state investors or being outbid with people going for 20k over asking price. I really dont get how they are able to find it an enticing deal with 20k over asking price.

  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    2y
    Quote from @Joseph Bui:
    Quote from @Nicholas L.:

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

     Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

    How are you financing these properties since their lower price properties?
  • Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes
    2y
    Quote from @Joe S.:
    Quote from @Joseph Bui:
    Quote from @Nicholas L.:

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

     Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

    How are you financing these properties since their lower price properties?

     These must be extremely light rehabs, I’m doing what I would consider a very light rehab, with honestly maybe a minor step up from builder grade, 1200 sf, 1 bath house, materials alone are 25k

  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    2y
    Quote from @Jack Seiden:
    Quote from @Joe S.:
    Quote from @Joseph Bui:
    Quote from @Nicholas L.:

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

     Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

    How are you financing these properties since their lower price properties?

     These must be extremely light rehabs, I’m doing what I would consider a very light rehab, with honestly maybe a minor step up from builder grade, 1200 sf, 1 bath house, materials alone are 25k


    Are you putting a long-term rental loan on these properties after you get them stabilized and if so, how are you getting the financing for such a small amount?

  • Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes
    2y
    Quote from @Joe S.:
    Quote from @Jack Seiden:
    Quote from @Joe S.:
    Quote from @Joseph Bui:
    Quote from @Nicholas L.:

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

     Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

    How are you financing these properties since their lower price properties?

     These must be extremely light rehabs, I’m doing what I would consider a very light rehab, with honestly maybe a minor step up from builder grade, 1200 sf, 1 bath house, materials alone are 25k


    Are you putting a long-term rental loan on these properties after you get them stabilized and if so, how are you getting the financing for such a small amount?


     It’s a flip, self financed through a loc, 220pp 60k rehab, will sell out between 400-450k.

  • Lender · Nationwide · Member since 2023 · 362 posts · 237 votes
    2y
    Quote from @Joe S.:
    Quote from @Joseph Bui:
    Quote from @Nicholas L.:

    @Joseph Bui

    I have to ask... are you really 'rehabbing' for 15K??  In Pittsburgh, similarly, you can absolutely buy properties in solid neighborhoods for 50-75K.  But you're not boosting the value enough to rent them for $1200 with 15K.  =)

     Rehabs are from 15-30k normally. I work with a team that helps with me end to end as I'm normally located in Seattle. They source deals, project manage the rehab and do property management as well. Yes, the average rent is about 1200-1300/month with a rehabbed 3 bed 1 bath 1000 sqft property.

    How are you financing these properties since their lower price properties?

     Cash up front. Force equity through rehab then do cash out refinance. I work with a lender that will do loans as low as 50k. 

  • Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    2y

    I see a lot of these posts on this thread mentioning the interest rate.

    Well, the risk of the deal has not changed, and the risk of the borrower has not changed.

    Somebody simply decided this is how it's going to be interest rate wise for a while.

    You would think a riskier borrower, or a riskier deal would drive interest rates up- but it's artificial.

    I suppose that's a bit of a rant- a tamed down rant, but still a rant.

    It kind of reminds me of that George Carlin saying "

    They don't want a population capable of critical thinking, they want obedient workers, people just smart enough to run the machines and just dumb enough to passively accept their situation."

    I'm not a lender, but it seems when the powers that be magically increase the interest rates- for a lender- that's just extra money without an increase in the deal or lender risk.

    Money for nothing essentially.

    Just my 2 Cents.

  • Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    2y
    Quote from @Don Konipol:

    Are the great deals gone?

    Through the years I've been seeing less and less "great" purchases, and more and more deals to be had at "market" pricing. Currently, we are at 12.75% interest with 3 - 5 points on the loan origination end; we haven't been able to locate any existing mortgage notes we can buy of similar quality with ROI even equal to that. We have in the past purchased notes in default, but this represents a different risk profile.
    On the equity end we haven’t purchased a property in the last 2 years.  Previously, we were able to obtain a 10 cap without undue risk (about 5 years ago); the. 3 or 4 years ago we were able to purchase at 7-8 cap and “juice” returns by borrowing 50% at 4% fixed 20 year financing.  Now, with borrowing at 6% +, the equity investments just don’t seem to make sense.

    More telling, perhaps, is that my usual sources of deal flow have not been able to come up with those one off GREAT deals we used to get once or thrice a year.  Oh, some of our sources THINK they’ve located those deals, but closer examination either uncovers higher risk, undisclosed negative information, or outright fraud.  I’ve expanded my sources of leads, but that’s a longer term project as when we establish new sources we become swamped with submissions of deals bearing no relation to our published criteria; at risk levels a river boat gambler wouldn’t touch, or flat out the source just shotgunning whatever crap comes across his desk, without even reading the documentation.  

    I’m a believer in “adding value” to the investment.  On the equity side by increasing net income and or decreasing risk, on the debt side by “working” the note.  Profitability can also be enhanced on a sale (sometimes) if we choose to provide owner financing or wrap financing.  Right now I don’t see any equity deals approaching a 12 cap without undo risk.  What I see is plenty offered in the 6-8 cap arena, and a lot of high vacancy properties with negative cash flow.

    Wondering what other investors are seeing? 


     If you are good you'll always find a great deal, but the market ain't like what it was 10 years ago. 10 years ago anyone could have killed it. Investing requires a bit more skill with how the market is these days.

  • Don KonipolBusiness Member
    OP
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    2y

    @James Wise

    “If you are good you'll always find a great deal, but the market ain't like what it was 10 years ago. 10 years ago anyone could have killed it. Investing requires a bit more skill with how the market is these days.”


    Exactly!

    Private Mortgage Financing Partners, LLC
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    2y

    The EASY deals are gone!

    Ten years ago, many sellers were still dealing with the repercussions of the Great Recession hit to real estate prices. 

    It was easy to buy a cashflowing rental because rents weren't really affected by the falling real estate market.

    Now, investors must spend a lot more time looking for "deals" and make a lot of low-ball offers to buy at prices that result in cashflow.

    Reminds us of the market BEFORE 2008 market crash.

    Logical Property Management4.9453 Reviews
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